Tesla plans to start construction this year and complete the facility, which it calls a "gigafactory," in 2017.
"In cooperation with strategic battery manufacturing partners, we're planning to build a large scale factory that will allow us to achieve economies of scale and minimize costs through innovative manufacturing, reduction of logistics waste, optimization of co-located processes, and reduced overhead," the company said in a blog post.
The Palo Alto, Calif.-based company expects the factory to supply enough batteries for the 500,000 cars it hopes to make by 2020. Tesla said large-volume production is aimed at reducing the cost of manufacturing the lithium-ion cells that power its cars.
Tesla and partners including battery maker Panasonic will invest between $4 billion and $5 billion to build the factory, which would supply battery packs to Tesla's Fremont, California, assembly plant. Earlier this week, Tesla announced plans to make 35,000 cars in 2014, a 55 percent increase from last year.
Tesla also announced Wednesday it would raise $1.6 billion in a debt offering. The proceeds would help finance the new factory and a lower-cost vehicle expected to go on sale at the end of 2016.